Lots of impressive earnings reports this week from the usual suspects (America Online, Sun Microsystems, Gateway, and Microsoft, among others), and tech stocks remained fairly strong. But the Dow took it on the chin, perhaps because (if you’re feeling cynical) people who invest in Dow stocks are the only people who still worry about things like rising interest rates or perhaps because (if you’re feeling Chicago-school rational) the Dow has more stocks in it that will be hit hard by a cyclical slowdown than does the Nasdaq. The truth is it’s hard to say.
In any case, the merger wave continued, with Glaxo and SmithKline Beecham announcing engagement plans. The news sent both companies’ stocks down sharply, but their CEOs never stopped smiling. The thing is, after the 1980s, we were supposed to have understood that most mergers don’t work, and that when the stock market punishes both stocks, the merger really won’t work. But then I remember: Even now, the stock market doesn’t run companies. Men who like the idea of running as big a company as can be imagined do. And so, on to this week’s Cocktail Chat.
1. “The Wall Street Journal reported that Warner-Lambert, American Home Products, and Procter & Gamble are trying to concoct a three-way deal to ‘foil’ Pfizer’s $78.9 billion hostile bid for Warner-Lambert. The Journal used the word ‘foil,’ but surprisingly, it did not run a photo of Pfizer’s CEO twirling his black mustache.”
2. “The interest rate on the 30-year U.S. bond is now actually lower than the interest rate on the seven-year U.S. bond. In other words, investors think it’s safer to lend money for a long time than for a short time (relatively speaking, since seven years ago the first George Bush was still president). Apparently bond traders are now anticipating a steep decline in the already low inflation rate, beginning in the winter of 2007.”
2a. “Do you think Soylent Green will really be people in 2007? I hope not.”
3. “In Microsoft’s 70-page response to Judge Thomas Penfield Jackson’s finding of fact in its antitrust case, the company compared its desire to control the presentation of Windows on PC screens to Monty Python’s Flying Circus’ desire to avoid having its shows edited without the troupe’s input. This means, of course, that if the case ever gets to the penalty phase, Judge Jackson will have to demand, before everything else, that Bill Gates and Steve Ballmer bring him a shrubbery, lest he have to say ‘Ni!’ “
4. “Best headline of the week: ’Mannesmann, Under Attack, Looks to France.’ Presumably praying that the grandson of Petain is running some French telecom giant.”
5. “New York Sen. Charles Schumer is taking a lot of heat for supporting President Clinton’s plan to extend Medicare to prescription-drug coverage after taking campaign contributions from a couple of big drug companies. But since the drug companies have firmly opposed the expansion of Medicare before semi-caving recently, all Schumer did was take their money and then sell them out. With today’s campaign-finance system, that’s probably as close to clean government as we’re going to get.”
6. “Michael Berger, founder of the Manhattan Investment hedge fund, admitted last Friday that he had been lying about his annual performance to investors in his fund for the past four years. Berger was a well-known bear, and over that same period often published letters warning that the stock market was on the verge of a crash, but despite the fact that the crash never came, investors kept giving him their money. Well, I guess there were Millerites even after the world didn’t end in 1841.”
7. “Oil prices jumped this week, due to cold weather in the Northeast. That’s certainly sensible. After all, who really knows if this winter thing is really a pattern or just a statistical fluke?”